STOCK UNDERWRITING
STOCK UNDERWRITING
Stock market IPO question?
ok i know that when a company goes public they hire an underwriting firm to decide when and how many shares to issue at what price, so my question is this, why wouldnt a company offer there shares at a low price and have the majority shareholder ( who most likely started and runs the company ) have a couple million shares at so that when they offer the shares on a public exchange and people by them and the price of the shares goes up the majority shareholder's shares are worth more? maybe i am way off base here, i am sure there is alot of stuff that i am missing can someone please explain how this stuff works? thanks!
The underwriting company effectively buys all the shares and then sells them in the IPO. If the shares are underpriced and they sell for a lot more than the IPO price then the company is leaving money on the table. If they overprice the shares and they dont all sell the underwriting company is stuck with those shares and has to sell them at a loss.
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